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Senate Bill Sets a Plan to Regulate Premiums

WASHINGTON — Fearing that health insurance premiums may shoot up in the next few years, Senate Democrats laid a foundation on Tuesday for federal regulation of rates, four weeks after President Obama signed a law intended to rein in soaring health costs.

After a hearing on the issue, the chairman of the Senate health committee, Tom Harkin, Democrat of Iowa, said he intended to move this year on legislation that would “provide an important check on unjustified premiums.”

Mr. Harkin praised a bill introduced by Senator Dianne Feinstein, Democrat of California, that would give the secretary of health and human services the power to review premiums and block “any rate increase found to be unreasonable.” Under the bill, the federal government could regulate rates in states where state officials did not have “sufficient authority and capability” to do so.

The White House offered a similar proposal in the weeks leading up to approval of the health care legislation last month. But it was omitted from the final measure, in part for procedural reasons.

Reviving the proposal on Tuesday, Mr. Harkin said: “Rate review authority is needed to protect consumers from insurance companies’ jacking up premiums simply because they can. Protections must be in place to ensure that companies do not take advantage of current market conditions before health reform fundamentally changes the way they do business in 2014.”

“Currently,” Mr. Harkin said, “about 22 states in the individual market and 27 states in the small group market do not require a review of premiums before they go into effect — and perhaps even more. This is a gaping hole in our regulatory system, and it is unacceptable.”

Under the new health care law, starting in 2014, most Americans will be required to have insurance. Insurers will have to offer coverage to all applicants and cannot charge higher premiums because of a person’s medical condition or history.

Michael T. McRaith, director of the Illinois Department of Insurance, told Congress on Tuesday, “There is a distinct possibility that less responsible companies will raise rates to price out people who are sick or might become sick between now and 2014.”

Mr. McRaith said he and the governor of Illinois, Pat Quinn, a Democrat, “unequivocally support state-based insurance regulation,” because local officials understand local markets.

He endorsed Mrs. Feinstein’s bill, saying it would “provide an impetus” for states to regulate premiums if they did not already do so.

Karen M. Ignagni, president of America’s Health Insurance Plans, a trade group for insurers, said Congress should let the new law work before piling on additional requirements.

Congress, she said, has largely ignored the cause of rising premiums: the explosive growth of medical costs and the power of hospitals and other health care providers to dictate prices.

Ms. Ignagni said the law imposed new requirements, taxes and fees on health plans, which could further drive up costs.

Senator Lamar Alexander of Tennessee, the No. 3 Republican in the Senate, said: “Health insurance companies’ profits for one year equal about two days of health care spending in the United States. So even if we were to take away all the profits of the so-called greedy insurance companies, that would still leave 363 days a year when health care costs are expanding at a rate our country cannot afford.”

Grace-Marie Turner, president of the Galen Institute, a research center that advocates free-market health policies, said the Democrats’ proposal was unlikely to succeed in lowering insurance costs.

“Capping premiums without recognizing the forces that are driving up costs would be like tightening the lid on a pressure cooker while the heat is being turned up,” Mrs. Turner said.

Mrs. Feinstein said her bill would close what she described as “an enormous loophole” in the new law. And she said health insurance should be regulated like a public utility.

“Water and power are essential for life,” Mrs. Feinstein said. “So they are heavily regulated, and rate increases must be approved. Health insurance is also vital for life. It too should be strictly regulated so that people can afford this basic need.”

Mr. Harkin interrupted the hearing to note that one of the nation’s largest insurers, UnitedHealth Group, had just reported that its first-quarter earnings had increased 21 percent, to $1.19 billion, surpassing Wall Street expectations.

Some securities analysts say they doubt that insurers can sustain such gains after major provisions of the new law take effect.

A version of this article appears in print on April 21, 2010, on page A15 of the New York edition with the headline: Senate Democrats Lay Out a Plan To Regulate Health Insurance Premiums. Order Reprints|Today's Paper|Subscribe